Global Marketing Management A European Perspective

1. Global MarketingManagementA European Perspective Global Pricing Warren J. Keegan Bodo B. Schlegelmilch

2. Environmental Influences on Pricing Decisions Different Approaches to International Price Setting Standardisation vs. Differentiation Dumping Grey Markets and Parallel Imports Transfer Pricing Summary Overview

3. Know about the complexity of international price setting Appreciate which external and internal factors influence international pricing Learn about different approaches to setting prices Be aware of factors promoting or inhibiting international price standardisation Know how to react to dumping by competitors Learn which key issues are involved in transfer pricing Learning Objectives

4. Rigid Cost-Plus Pricing and Flexible Cost-Plus Pricing Dynamic Incremental Pricing Price Corridor Dumping Parallel Imports and Grey Markets Transfer Pricing Principle of Arm`s Length Global Pricing: Important Concepts

5. Currency Fluctuations Two positions: Fix prices in country target markets Fix prices in home-country currency Pricing should be consistent with the company`s marketing strategy Inflation Inflation is a persistent upward change in price levels Inflation requires periodic price adjustments Environmental Influences on Pricing Decisions (1)

6. Government Controls and Subsidies In countries, which are undergoing severe financial difficulties, governments may restrict price increases or prescribe fixed prices Competitive Behaviour and Market Demand Pricing decisions are also dependent on the nature of demand and competitive action Environmental Influences on Pricing Decisions (2)

7. Adding up all the costs required to get the product to where it is sold All costs incurred in getting a product to an international market are taken into account Cost-Plus Pricing sometimes ignores competitive conditions Rigid cost-plus pricing is mostly used by companies new to foreign business Rigid Cost-Plus Pricing

8. Flexible cost-plus pricing is based on the same principle as rigid-cost plus pricing However: Prices may vary, if the market situation requires (e.g. the nature of the customer, the size of the order or the intensity of local competition) Flexible Cost-Plus Pricing

9. Price setting practice which is based on the idea that fixed costs occur regardless of whether the company is successful or not The goal is to regain at least variable costs and international marketing and promotion costs in export ventures This strategy is also known as penetration pricing Penetration pricing means that the product may be sold at a loss for a certain time to gain market share Dynamic Incremental Pricing

10. It is an important question whether prices should be standardised across markets or differentiated between international markets Companies do not act consistently Cross-subsidisation: a company uses financial resources from one area to compete in another area Standardisation vs. Differentiation in International Pricing

11. Influences on Prices Standardisation vs. Differentiation Factors Driving Factors Driving Price Differentiation Price Standardisation Reduction of Trade Customer Preferences Barriers Related Drivers Drivers Competitive Decreasing - Situation Transportation Costs External Market Optimal Prices ! Active Retailers / Grey Cost Situation Markets /Global Sourcing Price Nivellation ? Future Developments Improved Communication Inflation/Exchange Rates Drivers and Information Flow Related Increasing Brand External - Regulations / Drivers Globalisation / Tariffs and Duties Standardisation Company

12. An International Price Corridor

13. Decision Making Framework for International Pricing

14. A company exports a product at a price lower than the price it normally charges in its own home market Dumping is an important global pricing issue, because it is sometimes regarded as unfair competition Organisations like the WTO or OECD have issued guidelines how to treat these problematic situations Dumping

15. Distribution of trademarked products in a country through channels unauthorised by the trademark owner Grey marketers take advantage of price differences between markets by re-importing branded merchandise from low-price to high-price markets Parallel Imports reduce or cannibalise sales by authorised channel members in high-price countries Grey Markets and Parallel Imports

16. Pricing transactions between buyers and sellers that belong to the same corporation The approach used will vary with the nature of the firm: Cost-Based Transfer Pricing Market-Based Transfer Pricing Negotiated Transfer Pricing Transfer Pricing

17. Companies sometimes use transfer prices to shift profits from high-tax to low-tax countries The principle of arm`s length is a way of establishing a transfer price between company units. The price shall amount to what two independent, unrelated entities would negotiate Tax Regulations and Transfer Prices

18. Summary • There are three different approaches to price setting • Rigid-cost pricing • Flexible-cost pricing • Dynamic incremental pricing • Dumping refers to selling products in international markets at prices below those in the home country • Grey Markets • Transfer Pricing